Tax office begins low doc loan audits

24 June 2004

The Australian Tax Office has begun auditing a number of people where income disclosed to lenders of low doc loans is substantially higher than that disclosed in their tax returns.

Tax Commissioner Michael Carmody said that in the cases under examination it is difficult to see how the loans could be serviced by the incomes disclosed in tax returns. Indeed in some cases the annual loan repayments themselves exceed reported taxable incomes. In other cases, people with substantial loans had failed to lodge tax returns.

"These are potentially serious breaches of the law. People deliberately understating their income face penalties of up to 75 per cent plus interest," Mr Carmody said.

Low doc loans do not require paperwork to prove income. The lending institution usually charges a higher rate of interest on these loans.

The Australian Tax Office has been matching details from a selected range of low doc loans with the borrowers' tax files.

"Not all raise concerns. However, in around 70% of the 176 cases examined, there is reason for us to believe there may have been an understatement of income or a failure to lodge income tax returns."

Audit and lodgement enforcement action now underway will determine whether our concerns are realised.

"If they are, we will undertake a comprehensive matching program and shift substantial resources into dealing with the issue," Mr Carmody said.

People who wish to voluntarily disclose an understatement of income or failure to lodge a tax return can do so by contacting the Tax Office on 1800 060 062 or by writing to Locked Bag 6022, Dandenong, Victoria, 3175.

People who come forward to voluntarily disclose an understatement of income in their tax returns can receive a substantial reduction on penalties that may otherwise apply.